BEIJING, March 8 (Reuters) - China said on Saturday that there was no room for compromise with Japan on questions of history and disputed territory, "each inch" of which it would defend from its Asian neighbour.

China's ties with Japan have long been poisoned by what China sees as Japan's failure to atone for its occupation of parts of China before and during World War Two.

Beijing's anger over the past is never far from the surface, and relations have deteriorated sharply over the past 18 months because of a dispute over a chain of uninhabited islands in the East China Sea.

"On the two issues of principle, history and territory, there is no room for compromise," Foreign Minister Wang Yi told reporters on the sidelines of China's annual parliament.

"Only by making a clean break with the past and stop going back on one's own words can the relationship emerge from the current impasse and have a future," Wang said, reiterating China's oft-stated stance.

Ships from both countries shadow each other around the disputed islets, called the Diaoyu in China and the Senkaku in Japan. Tokyo has scrambled jets numerous times in response to Chinese aircraft, raising fears of a clash.

Japanese Prime Minister Shinzo Abe says Japan needs a stronger military to cope with what he calls an increasingly threatening security environment, with a more militarily assertive China and unpredictable North Korea.

Ties between the two Asian rivals worsened when Abe visited Tokyo's Yasukuni Shrine on Dec. 26, which China sees as a symbol of Japan's past militarism because it honours wartime leaders along with millions of war dead.

China has increasingly contrasted Germany and its public remorse for the Nazi regime to Japan, where repeated official apologies for wartime suffering are sometimes undercut by contradictory comments by conservative politicians.

Three diplomatic sources told Reuters last month that China wanted to make the war a focus of President Xi Jinping's trip to Germany later this month, much to Berlin's discomfort, as Beijing tries to use German atonement for its wartime past to embarrass Japan.

"I want to emphasize that instead of using Germany before the First World War as an object lesson, why not use Germany after the Second World War as a role model?" Wang said. (Reporting by Michael Martina; and Ben Blanchard; Editing by Nick Macfie)